Ruhr Economic Papers

Ruhr Economic Papers #767

The German Productivity Paradox – Facts and Explanations

by Steffen Elstner, Lars P. Feld and Christoph M. Schmidt

RUB, RWI, 08/2018, 48 S./p., 8 Euro, ISBN 978-3-86788-895-0 DOI: 10.4419/86788895

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Abstract

Despite massive digitization efforts, the German economy has experienced a marked slowdown in its productivity growth. This paper analyzes the reasons behind this disconcerting development. A major factor is the turnaround of the labor market that commenced around 2005. The successful integration of five million predominantly low-productivity workers into the labor market induced an attenuating effect on productivity growth. This does not explain the slowdown entirely, however. As a potentially important countervailing force, technological advances associated with digitization would have had the potential to lift productivity growth more strongly, but they frequently translated into employment growth instead.

JEL-Classification: O40, E24, C32

Keywords: Labor productivity; labor markets; technology shocks; digitalization; structural VARs

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